The decline in oil prices led to a fall in inflation expectations, causing traders to bet that the UK will only raise interest rates by 25 basis points once this year.

Due to the impact of falling oil prices and easing inflation expectations, traders have reduced bets on the extent of the Bank of England's interest rate hike this year. Betting in the currency market suggests that the Bank of England will only raise interest rates by 36 basis points before the end of the year, the lowest level in over a month. According to swap contracts linked to policy meeting dates, this is equivalent to a 25 basis point rate hike, with the probability of another rate hike being less than 50%. The yield on the UK two-year government bond, which is more sensitive to changes in monetary policy, fell by 8 basis points to 4.22%, hitting a one-month low. The UK heavily relies on imported energy and is vulnerable to economic shocks caused by conflicts, so traders believe that if conflicts end quickly, it will further alleviate inflation pressures. Pooja Kumra, Senior Interest Rate Strategist for UK and Europe at Toronto Dominion Bank, said: "Compared to the levels in February, UK government bonds will definitely perform well due to the significant repricing. Discussions about the Channel shipping volume returning to pre-war levels within a month are undoubtedly positive news for the market." Brent crude oil prices fell below $95 per barrel for the first time in over a month, having reached recent highs of over $115 per barrel. A draft memorandum of understanding stated Iran will resume traffic in the Strait of Hormuz, combined with the US lifting sanctions, which could lead to a significant amount of oil re-entering the market. Just two weeks ago, the market was expecting two interest rate hikes by the Bank of England this year; however, following the US and Israeli attacks on Iran, the market had expected four rate hikes within a few weeks. Currently, traders believe there is about a 50% chance that the Bank of England will deliver its first rate hike in July. Last week, Bank of England Governor Andrew Bailey stated that UK inflation expectations have not yet anchored; the data released last week on April's inflation rate has dropped to its lowest level in a year.